PM’s spending plan may mean tax cuts are unaffordable
A report from the Institute for Fiscal Studies (IFS) and Citibank has warned that Boris Johnson’s proposed public spending would see the Chancellor overshooting the Government’s borrowing limit by £5bn in 2020/21 – leaving tax cuts pledged by the Prime Minister unaffordable. Mr Johnson, in pledges made during his leadership campaign, promised to cut income tax by raising the higher rate income tax threshold from £50,000 to £80,000 in 2020/21, a policy the IFS described as a “substantial and expensive tax cut from which only those on high incomes would gain”. IFS director Paul Johnson cautioned the Government against further tax giveaways given the “extraordinary level of uncertainty and risks facing the economy and public finances”. The IFS has also called for reform that would remove a “bizarre” and “arbitrary” income tax quirk that means higher earners pay an effective rate of 60%. The gradual removal of the £ ;12,500 tax-free personal allowance by £1 for every £2 for anyone earning more than £100,000 means that, once national insurance contributions are factored in, the effective rate can be as high as 67%. The IFS and Citi report also said the economy is about £60bn smaller than if the country had voted to stay in the EU, while a no-deal Brexit could mean zero growth for two years.
Ministers urged to rethink tax relief rules
Campaigners are calling on ministers to offer greater support to people in part-time and low-paid jobs who are losing out on pension savings, with rules leaving 1.7m low earners without tax relief on their savings. Those affected earn between £10,000 to £12,500, enough to qualify for automatic pension enrolment, but not enough to pay income tax. As they have no tax deductions, they get no tax relief on their pension contributions – meaning their contributions cost 25% more than those on a slightly higher wage. Analysis shows that around two-thirds of the workers affected are women. Urging a rethink on the rules, signatories including former Pensions Minister Sir Steve Webb, the TUC and the Low Incomes Tax Reform Group have written to ministers, MPs and the Department for Work and Pensions.
Source: The Sunday Times (06/10/2019)
Stamp duty take down by £745m since 2017/18
HMRC figures show that stamp duty receipts for residential housing transactions fell by £745m between 2017/18 and 2018/19, slipping from £9.07bn to £8.32bn in the first year-on-year drop seen since 2008/09. Meanwhile, the FT suggests Boris Johnson “clearly has stamp duty in his sights,” with the Prime Minister reportedly considering scrapping it for certain price brackets.
Housing Secretary: IHT is unpopular and unfair
Housing Secretary Robert Jenrick has described inheritance tax as “unfair” as it means people are taxed twice, suggesting that it is “particularly unpopular” because people want to be able to pass on more to their families. His comments come after Chancellor Sajid Javid last week suggested that he was considering scrapping IHT, saying that he understood the arguments against the charge. Mr Jenrick told Sky News that people “can see the fundamental unfairness of paying tax twice,” adding: “I can see why the Chancellor is interested in this one.” HMRC figures show 28,100 estates paid the tax in 2016/17 – a 15% rise on 2015/16 – while the tax is forecast to raise £5.3bn for the Treasury this financial year, accounting for 0.7% of all receipts the Government brings in.
Source: The Times (07/10/2019) The Daily Telegraph (06/10/2019) Daily Mail (07/10/2019)
Red tape bill for UK-EU trade under no-deal Brexit set to hit £15bn a year
HMRC has warned that a no-deal Brexit could see businesses facing an extra £15bn in admin costs related to customs paperwork, with the total excluding any new VAT costs.
Source: Financial Times (09/10/2019)
1 in 4 small firms yet to review Brexit impact
Research from insolvency trade body R3 shows that almost a quarter of firms with fewer than 50 employees are yet to review the potential impact of Brexit on their suppliers or customers, compared to fewer than 1 in 20 companies with more than 250 workers. The poll of 1,200 senior decision-makers found that across firms of all sizes, one in six had not reviewed their trading partners. On Brexit planning, Mike Cherry, chair of the Federation of Small Businesses, said small firms are being made to wait for an update to the Government’s revised UK tariff schedule that would apply if no Brexit deal is agreed, saying this “must be published as a matter of urgency.” “The continued uncertainty is harming small firms’ ability to plan,” he added.
Source: The Times (07/10/2019)
FSB in export voucher plea
The Government has been urged to provide small firms with vouchers that will help them sell goods abroad, with the Federation of Small Businesses (FSB) saying export vouchers would help deal with costs such as translation and additional market research post-Brexit. FSB chairman Mike Cherry said: “Exporting is a critical part of the economy. The introduction of export vouchers up to £3,000 will alleviate some of the strains exporting firms are facing.” Research for the FSB shows that 53% of SME exporters to the EU believe their business continuity and growth would be negatively impacted by a no-deal Brexit.
Source: The Times (07/10/2019) The Sun (07/10/2019) Yorkshire Post (07/10/2019) The Press and Journal (07/10/2019)
UK economy facing heightened risk of recession
The UK’s economy may have tipped into recession following a downturn in the dominant service sector, according to closely-watched figures. The IHS Markit/CPS purchasing managers’ index for services fell to a six-month low of 49.5 in September. The 50 level divides growth from expansion. It suggests the economy shrank 0.1% in the three months to September, after a 0.2% fall in the previous quarter. “Coming on the heels of a decline in the second quarter, [this] would mean the UK is facing a heightened risk of recession,” said IHS Markit economist Chris Williamson. However, some experts urged caution, as official data last month eased recession fears.